How to rebuild emergency fund without halting SIPs

I used up ₹3 lakh from my emergency fund last year. I now earn ₹80,000 per month— ₹60,000 goes toward living expenses and ₹20,000 into SIPs. What’s a realistic way to rebuild my emergency fund without stopping my investments? What portion of my income should I target? Should I use sweep-in FDs or liquid funds? And is it wise to maintain smaller buffers for medical or home repairs?

—Name withheld on request

Let’s break this down step by step:

How much emergency fund should you target?

Rather than focusing on your annual income, it's better to benchmark your emergency fund to monthly expenses. In your case, that’s ₹60,000/month.

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Short-term target: Save at least 3 months’ worth— ₹1.8 lakh

Medium-term target: Build up to 6 months— ₹3.6 lakh

This amounts to roughly 20% and 40% of your annual income, respectively.

How to rebuild without stopping SIPs?

You’re already investing ₹20,000 monthly via SIPs and wish to continue. Since your current income is fully allocated:

Trim discretionary spending: Carve out ₹5,000– ₹10,000 monthly from your existing ₹60,000 expense pool.

Redirect windfalls: Channel bonuses, gifts, or any additional income straight into the emergency fund.

Optional hybrid approach: Temporarily reduce SIPs by ₹5,000/month for 3 months and combine that with ₹10,000/month trimmed from expenses. This accelerates your emergency fund buildup without fully compromising your long-term goals. Once you’ve saved ₹30,000– ₹40,000, you can restore full SIP contributions.

Read this | Biggest myth is that stopping SIPs during downturns prevents losses: Edelweiss AMC CIO

Where should you park this money? Sweep-in FD vs Liquid Funds

A mix works best:

30% in sweep-in fixed deposits: Offers instant liquidity and decent returns.

70% in liquid mutual funds: Slightly less liquid (usually T+1 redemption), but more tax-efficient and higher yielding over time.

Should you maintain separate mini-buffers?

Yes, once your core emergency fund hits the three-month mark, start building separate buffers:

Medical buffer: ₹50,000– ₹1,00,000 (especially if your insurance doesn’t fully cover costs)

Home/appliance repairs: ₹20,000– ₹50,000

Also read | SIPs stop, demat accounts slump: Are retail investors running scared?

Plan of Action Summary:

Goal: ₹1.8 lakh (short term), ₹3.6 lakh (medium term)

Timeline: 2–4 years, depending on your saving discipline

Investment mix: 30% sweep-in FD, 70% liquid funds

Add-on buffers: Start building once the main fund is in place

SIPs: Don’t stop, only consider temporary reductions 

Prasanna Pathak is managing partner at the Wealth Co. Asset Management Pvt. Ltd.